Jumbo Mortgages Explained
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- JR Hevron - MortgageLoan.com
You may find that you need a jumbo mortgage for even a modest house.
These days, the term jumbo mortgage can be slightly misleading. While “jumbo” may conjure up images of super-sized country estates and oversized Hollywood mansions, even an unassuming house in the suburbs can require a jumbo mortgage.
Read on to find learn more about jumbo mortgages and why you may need one—if you can afford it!
What is a Jumbo Mortgage?
Basically, if you need a loan amount that is higher than $417,000 or, in some higher priced areas, $729,750 you need a jumbo mortgage.
More specifically, a jumbo mortgage is a loan for an amount above the conforming limits set by Fannie Mae and Freddie Mac. The loan limit is set at $417,000 in most parts of the US. However, in high-cost areas, the limit can be as much as $729,750. These high limit areas include expensive cities in New York, Washington D.C., and California. Also, the limit in Alaska, Hawaii, Guam, and the U.S. Virgin Islands is slightly higher at $625,500.
How are they different from other loans?
Basically, they have a higher interest rate and require the borrower to put down more of the principle.
More specifically, the interest rates are generally 1% higher than regular loans and require a borrower to put down 20%-30%. Also, after the financial crisis lenders are much lot stricter about having borrowers document their income and other financials.
If you can stomach it, a jumbo ARM will have a much lower rate than a fixed rate jumbo mortgage.
Why are they more expensive than regular loans?
A jumbo mortgage is a riskier investment for a lender. If the loan defaults, they will likely have a much more difficult time selling the property for full value. Also, many jumbos come directly from big banks that keep them on their books rather than selling them like commodities.
If you are looking for a home these days, it’s likely that you’ll have to think about a jumbo loan. Prepare ahead of time and make sure that you have the cash in reserve to make the down payment and to cover the higher monthly mortgage.
If that’s an issue, you might want to limit your search to houses that are below the conforming limits!
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